US TSYS HIGHER:TAME CPI,SAFE-HAVEN BID/N.KOREA WORRY PRE-WKEND

     US TSYS SUMMARY: US Treasuries prices ended Friday higher after

short-covering/safe-haven buying tied to U.S./North Korea tensions and to soft

0.1% July CPI/Core CPI data. 

- Treasuries began higher, flatter after overnight safe-haven bid on N.Korea

then saw early buying after CPI. However the market dipped midmorning amid

speculation that a China/Russia compromise plan for N.Korea and US might defuse

tensions, with also rate-locks cited and profit-taking on safe-haven rally for

the dip. The long end esp. saw selling, and curve steepened as equities traded

higher, FX-tied buying eases as USD bounced. Flow two-way in 10s & 30s, props,

fast- and real$. 

- But then the market had a re-think and soon reverted back to the safe-haven

bid mood: European accounts covered Tsys shorts in NY midday, while US accounts

bought before the weekend N.Korea event risk too. 

- Sources cited flattener unwinds, two-way in 5s and 10s, others unwind longs as

equities rebound following steep losses this week, squaring up ahead weekend.

Foreign central bank buying occurred in US intermediates, with paying in short

end into next wk corporate bond issuance. 

- Tsys futures had active block trades: 9:35am ET buy of 8,400 FVU 5Y, 8:33am ET

buy of 5,000 TYU 10YT, 8:32am ET steepener (buy 15K TYU/sell 5,000 TYU), and

8:16am ET apparent sale of 6,420 FVU 5Y futures. Also TYU 10Y futures saw a

1:30pm ET buy of 5,055 10Y futures. 

- Limited mkt reaction as Fed's Kaplan, Kashkari noted lagging inflation, labor

slack. 

- TSYS 3pm ET: 2Y 1.294%, 3Y 1.444%, 5Y 1.740%, 7Y 1.999%, 10Y 2.189%, 30Y

2.787%

US TSY FUTURES CLOSE: Higher across the curve, off highs with late two-way in

the long end. Safe-haven/risk-off tone near abeyance, rate hike probability

lower, lmited react to Fed speak, Kaplan and Kashkari both note lagging

inflation, labor slack. Current futures levels: 

* Sep Ultra bonds up 5/32 at 168-00 (166-31L/168-19H) 

* Sep 30-yr Bond futures up 4/32 at 155-15 (154-23L/155-29H) 

* Sep 10-yr futures up 8/64 at 126-26 (126-17.5L/126-28H) 

* Sep 5-yr futures up 7.5/32 at 118-21 (118-13.5L/118-20.5H) 

* Sep 2-yr futures up 2.75/32 at 108-09.25 (108-06.25L/108-09.25H)

US SWAPS: Spds steady/mixed all session while spd curve extends flattening late

w/wings on respective extremes. Combo late risk-off rate paying by specs and

proactive deal-tied hedging ahead next week high grade supply helped spur move;

choppy long end moves in rates today spurred some payer unwinds. OTC vol steady

to mixed vs. prior session, gamma, particularly 1-3M10Y bid for the week. Latest

spread levels: 

* 2Y +0.69/26.22 

* 5Y +0.25/8.25 

* 10Y -0.25/-3.81 

* 30Y -0.88/-32.94

US EURODLR FUTURES CLOSE: Higher across the strip, near session highs with

decent/consistent bid through the second half. Short end lagging while Dec'17

futures imply lower rate hike probability into year end at 38.2% vs. 42% last

week. Current White pack (Jun'17-Mar'18): 

* Sep'17 +0.000 at 98.675 

* Dec'17 +0.025 at 98.575 

* Mar'18 +0.040 at 98.515 

* Jun'18 +0.040 at 98.460 

* Red pack (Sep'18-Jun'19) +0.045-0.050 

* Green pack (Sep'19-Jun'20) +0.045-0.040 

* Blue pack (Sep'20-Jun'21) +0.035-0.030 

* Gold pack (Sep'21-Jun'22) +0.025-0.015

OUTLOOK: *** Data/speaker calendar (prior, estimate): 

- Aug 14 Aug NY Fed expectations survey 1100ET 

- Aug 14 US Tsy $39.0B 13-Week Bill Auction 1130ET 

- Aug 14 US Tsy $33.0B 26-Week Bill Auction 1130ET

Eurodollar/Treasury option summary

Eurodollar options,

Block:

0739ET-1132ET

+37.5k E2Z 72p, 1.0 vs. 98.055/0.05%

0932ET

10k E2U 80/82 strangle or combo

0954-0952ET

+26k EOU 82/83 R/R, 5.5c ovr

0932-0954ET

+26k E2U 80/82 R/R, 3.0-3.5c ovr

1252ET

10k E2U 85c, 11.5 vs. 98.23/0.10%

Pit/screen:

+15k EDH 81/82p spds, 1.0

-15k EDZ 83/85p spds, 3.0

-10k EDZ 85 straddles, 13.5 vs. 98.56/0.32%

+10k EDX 83/85p spds, 2.0

7.5k EDM 80/81p spds, 1.5 vs. 98.42/0.10%

5k EDZ 85/86/87 1x3x2c flys, 1.0 ongoing

2.5k EDZ 85 straddles, 13.5

2k EDM 85/86 1x2c spds, 1.0

2k EDU'18 80/81p spds, 2.5

34k EOZ 86c

+15k EOZ 80/81p spds, 2.5

10k EOZ 78/80/81p flys, 1.5

-10k EOU 83 straddles, 11.0

7.5k EOF 83 calls

5.2k EOX 82 straddles vs. 81c

5k EOF 80/81 strangles

+5k EOU 83/85/86c trees, 4.0

Package, ongoing:

-5k EOF 82 straddles, 25.5 vs.

+5k EOH 83/87 1x2c spds, 5.5 vs.

+2.5k EOF 78/81 3x2p spds, 7.5

4k EOU 85/86c spds, 1.5

4k EOQ 83 straddles

2.5k EOV 85c, 2.5

2k EOV 80/81p spds, 1.5

2k EOU 80/81/83/85p condors, 7.5

9k E2Z 76/77/78p flys

3k E2U 77/80 3x1p spds, 1.0

3k E2U 77p, 0.5 vs. 98.16

2.5k E2Q 81/82 1x2c spds, 6.0

2k E2Z 77/78/80p trees, 0.5

2.5k E2H 76/85 R/R, 0.5c ovr

-5k E3U 77p, 1.5

-2k E3Z 78 straddles, 35.0

-2.5k E3Q 80c,1.0

Tsy options

Pit/screen:

+5k TYU 126+p, 16

3.75k TYU 128+c, 4

1k TYU 127+c, 10

2.4k FVZ 117/118 2x1p spds, 8

1.7k FVU 117.2/120+ strangles, 1

1.5k USU 159c, 12

1k TUU 108.1/18.3 R/R, .5p ovr

--MNI New York Bureau; tel: +1 212-669-6432; email: sheila.mullan@marketnews.com

[TOPICS: MTABLE,MNUEQ$,M$U$$$,MR$$$$,M$$FI$,MN$FI$]